Category Archives: economic history

A REPLY FROM AN ECONOMIST TO THE ANTI-INTELLECTUALISM OF DONALD TRUMP AND MICHAEL GOVE

November 9, 2016economic history, Economics, Philosophy, Politics, United KingdomAdam Smith, Anne Pettifor, Anti-intellectualism, Aristotle, Ayn Rand, Brexit, Donald Trump, Financial House of Cards, First World Debt Crisis, Friedrich Hayek, Gordon Brown, Keynes, Long term economic decline, Michael Gove, Neo-Liberalism, Teresa May, The speculative economyangrytunbridgewells

(There were many errors in my first draft, it was written in anger and published without a thorough checking for error.)

Contention

Economists don’t always have the right answers, they can be wrong at times, but their answers to problems are better than those of ill-informed politicians and journalists. There are plenty of never-never land politicians selling an unreal picture of the world to the electorate. There are many fewer such economists because there work would have undergone informed scrutiny by their peers and much that is dubious would have been discarded. The overwhelming majority of economists believe that Brexit will inflict significant economic damage on the economy, while a significant number of politicians and most journalist believe the reverse (who are lacking any evidence apart from their misguided optimism in the rightness of their beliefs).

Confession of interest

I am one of those experts that Michael Gove spoke abouto he said people are fed up with and who they should be ignored by the people when making decisions about the future, such as how to vote in the EU referendum. I am one of those people who following Aristotle’s advice have dedicated the best part of their life to study. What Michael Gove is trashing is the value of learning, I cannot accept that my years of study have been wasted. How can such small minded person go against centuries of a tradition that values learning? He is a graduate of an elite university but he seems to dismiss the value of what he learnt there. I can say to Michael Gove that when teaching in a tough secondary school I never demeaned myself to pretending that I lacked learning. What young people can identify is the phoney, the teacher that pretends to be like them. Michael Gove’s attempt to pretend to be one of the people is as phoney as my colleagues who adopted a fake working class accents and mimicked the words and manners the young in an attempt to win their favour. Behaviour as phoney as that of the Dad who to tries to impress by claiming a knowledge of and love for garage music and rap.

The dangers of contempt for learning

If Michael Gove’s lead is followed as experts such as myself as regarded as just another self interested individual with an agenda to promote, a lot is lost. Economists such as myself are in possession of or can access a body of knowledge about the economy not available to others. Acquiring and understanding the store of economic knowledge takes years and to be honest a life time of study, because the subject is always changing and developing. What Michael Gove is saying is that my learning is of no consequence. I cannot accept that the anti intellectualism of todays politicians will stand future scrutiny. Without wishing to be too unkind Michael is an insignificant figure compared to Adam Smith, Ricardo, Keynes, Hayek, Polanyi and Robinson. With time his anti intellectual populism will be a but a minor blip in the progress of humankind. In studying economics I developed a critical faculty which makes it possible to make reasoned judgements about government policy, rather than relying up prejudice and common sense on which to found my judgements. Paraphrasing a much greater thinker than myself who used this phrase in the context of religious belief, those who don’t believe in God are likely to believe in anything; similarly those who don’t believe the truths of economics are likely to believe any nonsense about the economy.

One such nonsense is the current belief that there is a real knowledge of the world, which is only possessed by men of business, who deal every day with the complexities of the real world, as opposed to the unreal world of academia. One such person held to possess this knowledge is Donald Trump, the next President of the United States. I would question the breadth of his knowledge, he is a real estate developer. Yet one who has failed in several business ventures and has only been saved from bankruptcy by the protection afforded by US law to such people. If you wished to buy and develop a property you would go to a real estate agent or property developer, but one with a better track record than Donald Trump. Apart from his deal making in which he has a very mixed record I cannot see how Donald Trump has a better understanding of the world than me. As a teacher I would be criticised for living and working in an unreal world, which is a silly phrase as the school is as real as the boardroom. One other silly untruth is that teachers lack the toughness to cope with the real world, all I can say is that these people who say that have little understanding of the difficulties of teaching a group of adolescents. One of the most telling examples of the falsity of this stance is a video on Youtube, where Michael Gove is addressing a group of teenagers. They show complete disdain for his lecture and indulge in all the behaviours of disaffection typical of teenagers. What I am saying is that my experience as teacher of economics is as valid as Donald Trumps as a property developer, although if I’m honest I think mine is the superior knowledge of the world.

When politicians deny the truths of learning they became prey to the teaching of messianic and charismatic charlatans such as the novelist – Ayn Rand author of ‘Atlas Shrugged,’ whose followers include Sajid Javid and all politicians of the Neo-Liberal persuasion. Her book paean to billionaires who she believes are the heroic figures that make our civilisation great. The central figure of the book John Galt a man of independent means who is puzzled as to why billionaires keep disappearing from society. He is taken to a mysterious canyon remote from Washington, where the billionaires are hiding, seeking sanctuary from a rapacious Washington. These billionaires are fed up with being oppressed by a government that so taxes and regulates them, that they are denied their role as the creative driving force of society, a rapacious government has reduced them to impotence. It does not realise that without their enterprise, society would fall into stasis and decline. When these billionaires go on strike society collapses and thousands of the useless poor die as a poor and weak government is forced to withdraw the income on which they depend for their survival. Eventually a discredited government is forced to welcome back the billionaires on their terms and these billionaires put society back on its feet and society develops and prospers. Many politicians of the new right are followers of Ayn Rand and her influence can be seen on government welfare policy. The Ayn Rands in government believe in a policy of brutalising the poor to the extent that they are forced to work at any price for anybody. It’s a cure for the wasteful culture of dependence, to such as ‘Sajid Javid’ homeless and misery is a just punishment for the useless poor. When governments ignore the truth tellers they are prey to the charlatans and other paddlers of fantasies and falsehoods.

Economists do possess a knowledge of the economy which is invaluable for the effective running of government. One such economist is Anne Pettifor who is constantly ignored by governments because she tells them truths they don’t want to hear. Economists such as her can be compared to the Old Testament prophets who were constantly ignored by the rulers of Israel.

Anne Pettifor -is the author of ‘The First World Debt Crisis’. While most politicians are aware that economic growth is driven by consumer spending and debt, such as the popular car leasing system, they have little awareness of the dangers of this policy. The growth of consumer debt is so large that it has created a credit or debt mountain of unsustainable proportions – UK bank debt in 2009 – 586% of GDP it falling to around 400% of GDP in 2009 (Dominic Raab), but has since risen. Even Germany has similar problems the collective debts of its banks are over 300% of GDP (much of the money lent to Greece was recycled back to the German banks who had made too many ill-judged loans to the Greeks, so as to prevent them experiencing a liquidity crisis).The UK vies continually with Japan for the title of most indebted country of the industrial developed world.

David Cameron was right that Britain was maxed out on its credit card, he was just wrong about which credit card.

Rather than tackle the problem the government spends billions on quantitative easing to provide the cash to keep the banks afloat. At the height of the financial crisis in 2008/9 Gordon Brown was willing to spend a sum equivalent to the almost the total national income to keep the banks afloat. The official policy is to kick the problem can down the road leaving it to a future government to tackle the problem.

Why do governments fail to tackle this problem? They fear the electorate reaction, if they brought the credit boom to an end. Loans of various kinds account for a significant proportion of people’s spending and to reduce lending would in effect to reduce people’s incomes in that they would be unable to spend as much as previously on various consumer goods. What they are most scared of is cutting spending in the housing market which would lead to a fall in house prices. The belief amongst politicians is that falling house prices equal lost election.

The best informed of politicians know that the risk is that the whole financial house of cards will come tumbling down in a crash as bad as that of 1929, yet they prefer the risk of a future catastrophic crash to taking action now.

The right and wrong of economics

Although I can as an economist make more accurate predictions about the future than any politician there are limitations to the usefulness of my predictions. I cannot say exactly when a predicted event will occur or how great will be its impact on the economy. The economy is a dynamic social institution that is constantly changing and changes can maximise or minimise the impact of the predicted event.

Last year The Observer published one of my letters in I which predicted an economic downturn in 2017. I made my prediction on the basis that all free and largely unregulated markets are liable to exuberant booms that always end in a crash. Past history shows that such crashes occur every nine years, that is 1990, 1999 and 2008/9.

This contention is supported by the economist Hayek. What he stated was that there is a period when the benefits of innovation are exhausted and economic growth falls and the economy falls into recession. This has happened to the UK as the benefits from the mass production of consumer goods begin to tail off. Since the mid 1980s there has been too many car manufacturers in Europe, making cars that were needed. The consequence was retrenchment in the car industry and in Britain the disappearance of the native car industry. When industry fails to deliver alternative sources of income need to be found. In the UK, USA and Western Europe that has been the development of the speculative industry, increases in income no longer come from employment but from the increase in the value of assets, such as houses. A speculative economy is particular prone to booms and busts, as there become periods when it is generally believed that prices have peaked and they can only go down. These downs are quite spectacular and cause widespread distress.

However although I can predict with confidence that a downturn will occur, there are a number of proviso’s that I must make about prediction:

There is no iron law that states a downturn will occur every nine years, but evidence from the past shows that this is likely, it is events that may change the date of the crash.

Brexit – if Teresa May calls an early election the uncertainty generated by that can bring the date of the crash forward to whatever she makes that announcement.

Events may occur that halt the downward trend – if the government panics at the thought of there being held responsible for the negative effects of Brexit and states that it will do whatever deal is is necessary to ensure that Britain remains in the single market, this could result in a boost to business confidence with businesses now rushing to make the investments that they had postponed due to the uncertainties of Brexit. This rush to investment will lead to a temporary boost to the economy that will delay the economic downturn. However it will only postpone the crash.

Conclusion – Economists are not infallible but they are closer to infallibility that most politicians. What economists possess that politicians do not is an understanding of the workings of the economy.

The Economics of the Titanic or a comment on Larry Elliot’s article on Brexit economics

August 21, 2016economic history, Economics, PoliticsBrexit, British indebtedness, European Central Bank, Greek Austerity, International Monetary Fund, J.K.Galbraith, Larry Elliot, NHS, Speculative booms and crashs, The Great Crash, The Guardian Newspaper, The Titanicangrytunbridgewells

When reading today’s Guardian I was struck by an article written by Larry Elliot. It was mocking all the doomsayers who predicted dire economic consequences if Britain left the EU. He quite rightly wrote that since the vote to leave the EU, the economy has been doing quite well. Unemployment is down, economic growth is higher than expected and sales in the retail sector are as buoyant as ever. There seems to be no evidence of the economic disasters that would occur if Britain left the EU, as claimed by the Remain campaigners. However, he does in his thoughtful article explain that there are still unresolved problems that threaten future prospects of the UK economy, such as the appalling low productivity levels of British workers and the large trade deficit. He does suggest that these problems do have solutions and that the shock of exit will force the government into tackling these problems in the economy that have been ignored by politicians for decades, as they wish to minimise the negative effects of EU exit.

There are just one or two caveats that I would wish to make. He as did I would have read J.K.Galbraith’s “The Great Crash”* when a student studying economics. He would have read that one of the prime factors in causing the great crash was an unsustainable boom in asset prices. One these prices moved downward all the flaws in a weak financial sector were exposed and a panic would set in forcing a crash sale in assets such as shares with the consequent bankruptcy of many business enterprises. There is plenty of evidence of there being a speculative and unsustainable boom in asset prices within the UK economy at present. Despite a few blips property prices have reached new highs. While it is not clear when the downward in the property market will occur it is likely to be sooner than later. Given the natural turn of events financial downturns occur every nine years, 1990, 1999 and 2008, which means that if this cycle continues there will be a crash in 2017. Leaving the EU has created an aura of uncertainty which not only undermines market confidence making a financial downturn more likely but means when it does occur it will be worse that otherwise would be expected.

If I could use a metaphor to describe the foolish actions of our political leaders, I would see it in the actions of the captain of the Titanic. The captain of this ship overestimated the soundness of the construction of this liner. He believed that if the ship collided with an iceberg, the nature of its construction would mean that any collision will result in minimal damage to the ship. As a consequence he sailed too far north, to close to the area of the Atlantic in which the icebergs where situated and the resultant collision with an iceberg sunk the unsinkable ship. The attitude of the politicians who campaigned for Brexit mirrors that of the Titanic captain. They vastly overestimated the soundness of the UK economy and its ability to withstand economic shocks. Instead of there being a small hole below the economic waterline, caused by exiting the EU which can soon be fixed, there is a much larger one that is capable of sinking the UK economy.

One of the flaws never mentioned by Larry Elliot and the Brexiters is the massive over indebtedness of the British economy. Consumer indebtedness is moving rapidly towards a total of 200% of GDP and the debts of our banks are far in excess of 400% of GDP. Much of this debt, particularly that of the banks is owed to overseas investors. Even in normal times this represents a problem for the UK economy, but in a time of uncertainty it becomes a far more serious one. The value of the pound sterling has fallen since Brexit, this has meant that the holdings of British currency in British banks by overseas investors has decreased in value. At the moment the fall in the price of sterling has stabilised and there has been no rush by overseas investors to withdraw their money. They judge that the advantages of investing money in Britain outweigh the disadvantages. However in a time of uncertainty there is a possibility that the value of sterling will fall further, which will probably occur when the exit negotiations hit some difficulties. Then these foreigner depositors will not be willing to see their cash deposits shrink further in value and so will begin to withdraw their funds from the UK. This can easily develop into a panic and the consequence will be a run on sterling. The UK government would have to apply to the International Monetary Fund for emergency funding to tide it over the crisis. Quite possibly the European Central Bank would be involved as many large European banks are located in London. In this event the price for these loans would be the imposition of a Greece like austerity programme. Such a programme of austerity would devastate the British economy as massive cuts in public spending would be required. One casualty would be the National Health Service as one of the first casualties, as the Greek experience shows that any national system of healthcare is regarded as a luxury that an indebted nation cannot afford.

If Larry Elliot’s memory had served him better he would have remember that Galbraith wrote that there was a relatively long lead in to the crash in 1929. The signs of the impending disaster were visible long before the crash occurred. Then it was the evidence of the foolish speculative spending made by investors, they would invest in anything in the hope of making a profit. One story sticks in my mind and that is the one property developer marketed Florida swamp land as a desirable housing investment. This obvious fraudulent nature of this development mattered little to investors as they believed what they bought for $1 in the morning they could sell for $2 at the end of the day to some sap. Obviously this could not continue and it would end in heartbreak for many. A minority of investors got out early recognising that there would be a stock market crash, investors such as Joseph Kennedy. The soon to be multi millionaire father of JFK. Similarly in Britain there are signs of problems ahead. There has been a marked fall in business investment as manufacturers are unwilling to commit to a future which is so uncertain. A collapse in business investment is as any economist knows is the mechanism which starts a downturn in economic activity and possibly a recession. There was also the short panic that occurred just after the Brexit vote when a number of property investment funds had to temporarily stop withdrawals as they had not the funds available to met the demands for cash withdrawals made by panicky investors. The omens for the future are not good, despite current appearances to the contrary.

Whatever happens in the coming years all that can be said it that they will be years of difficulty for the British people. Years of difficulty brought about by the foolish actions of our political leaders who demonstrate a flawed understanding of the UK economy.

* J.K.Galbraith ‘The Great Crash’ an account of the Great Depression which started in 1929

The Faustian Bargain that is the British Housing Market

July 10, 2016economic history, Economics, Politics, United KingdomBalance of Paymnts Crisis, Faustian Deal, George Osborne, Gordon Brown, International Finance, London's private rental market, Mephistopheles, Neo-Liberalismangrytunbridgewells

When economic issues are discussed in parliament they are rarely those that matter. Issues that really matter are also almost absent from the media. There are economic issues that are not spoken of in polite society or parliament, One such problem that is continually swept under the carpet is the horrendous balance of payments deficit, the largest of any developed economy. This debt is subject to constant revision so it is hard to give accurate figures, but the for last quarter of this year it reached 7% of GDP. A figure a third of that caused a financial panic in 1967, whereas today far worse figures provoke no reaction.

Gordon Brown when questioned about this problem, said the world had changed and it was no longer a problem. What he meant was the government of the time could fund the enormous trade deficit from the large inflows of cash coming into the UK from abroad. To put it simply we were using the money invested in the UK to pay our debts to the rest of the world. This particular economist thinks that it is very poor policy to remain the perennial debtor nation that relying on the goodwill of others for the means to pay its debts.

The government has to take extraordinary measures to ensure that this money keeps flowing into the country. This is achieved by introducing policy measures to ensure that property prices keep on increasing so making commercial and more particularly residential property prices continue to rise. Falling property prices the week as a result of Brexit caused a panic in government. Action was taken immediately to slow or halt the fall in property prices. The government increased the amount of money banks would have available to lend to the property market. Simply by ensuring that there is plenty of cheap money around to buy property will tempt buyers into the market hoping to pick up bargains, which in turn keeps up property prices

However the government has made what is a Faustian deal with the property market. The deal is quite simple, the government will sacrifice the rights of the young, the low paid and those resident in London to accommodation in return for the massive inflow of cash from foreign investors into the property market. All these investors want is ever rising prices and the government is prepared to acquiesce even if it means denying the young, Londoners access to adequate housing. If large parts of London are subject to significant depopulation due to rising house costs that is acceptable to the government, as the alternative is much worse. The much worst alternative is admitting to the horrendous trade deficit and reducing the import bill through imposing strident cuts in the standard of living for the nation’s people, better to lie and fantasise about the strength of the economy than admit to some painful truths.

One of the most effective ways of pushing up house prices is to reduce the supply of housing relative to demand. This is perhaps the most objectionable part of the Faustian deal, that is deliberately pursuing a policy that will leave millions living in substandard accommodation. Governments no longer build social housing, the once thriving council house building programme has ceased. The consequence is house building has fallen to the low levels ever seen in modern Britain. House building is now left to private developers and the underfunded housing associations. The various right to buy schemes have resulted in the large scale transfer of local authority housing to private landlords. Consequently market power no resides with the private landlord they can constantly increase rents, often charging higher and higher rents for what is increasingly inadequate accommodation. This increasingly profitable private rental sector attracts foreign investors, the people whose money is needed to finance the balance of payments deficit.

Various denial of truth strategies are used by politicians to excuse their inaction in what is an increasingly worsening housing crisis. One of the worse is that if the government intervenes in the private sector it will worsen the crisis. They claim that if the government intervenes by increasing security of tenure or controlling rents, private landlords will leave the market in droves reducing the amount of accommodation available and making many more homeless. This is nonsense as too many landlords have invested too much money to withdraw from the market. Legislation could be introduced to ensure that existing landlords did not withdraw from the market, through the compulsory registration of landlords.

What our political classes are unaware is that Faustus had to pay a high price for the help of Mephistopheles, he had to surrender his soul. Similarly the new Mephistopheles in the guise of international finance requires a high price for its support, the surrender of the integrity of the political classes. To keep the cash following into our economy this new Mephistopheles demands that policy be structured meet to its needs. What it requires are two things the first is constantly rising property prices and the second that in the event of a price crash the government takes measures to stabilise prices, so ensuring that the investors do not suffer too big a hit. The governor of the Bank of England in fulfilling this promise, this week announced a whole series of policy measures to stabilise the property market. The fact that these measures would also protect the house owner from the threat of increased mortgage costs and possible repossession was only of secondary importance. Even George Osborne (Chancellor) admitted that his new policy to support new house buyers was a measure whose primary importance was to keep up house prices.

This is not the way to manage an economy

June 28, 2016economic history, Economics, Politicsconsumer debt, Cost Push Inflation, Demise of the British owned car industry, EU Referendum, Financial crash 2008/9, Inflation, Leasing Cars, The Great Depression, The Vietnam Warangrytunbridgewells

Sometimes I think economic policy making can be best explained through stories, with ogres, giants and other mythical figures from folk tales wreaking havoc on the economy. Contemporary policy makers are obsessed with the ogre of inflation, although that particular ogre was slain years ago.

The events of the 1970s traumatised the political classes in the West. There are two explanations of the inflation of the 1970s, one is that the world economic system became increasingly dysfunctional in response to political crises such as the Vietnam war and the actions of OPEC in raising oil prices to cripplingly high levels. However that explanation became disregarded and instead policy makers focused on what they termed cost push inflation. Workers by pushing for above inflation pay increases were causing inflation to spiral out of control. This inflationary spiral was given further impetus by excessive government spending, this spending increased faster than the capacity of the economy to increase output of goods and services and in consequence prices rose (demand pull inflation).

Rather than accepting the inflation of the 1970s was due to a series of one off events, they believed that the cause was a malfunctioning economic system. Inflation had to be squeezed out of the system through controlling wages and reducing government spending. This caused in Britain the recession of 1981 in which it lost 20% of it’s manufacturing capacity and a massive increase in unemployment. This policy was counted a success as inflation was reduced to historically low levels. The policy of limiting the increase in incomes has been so successful that in the USA the incomes of the majority have remained unchanged since 2003 and in Britain since 2008.

However the economic is a dynamic creature and cannot be constrained within policy straight jacket. Businesses that have successfully limited the incomes of their employees to keep down costs are now faced a new problem. People on low or stagnant incomes don’t buy lots of goods and there was a danger than stocks on unsaid manufacturing goods would build up. Mountains of unsold goods would diminish the profitability of these businesses.This certainly seemed to be true of the motor industry, where for year on year output of cars exceeded demand for them. There was some reduction in capacity, the closure of much British owned car manufacturing. However a dynamic economy will soon go into reverse if demand for goods is not maintained.

If rising demand could not be financed from ever increasing incomes, an alternative had to be found. The alternative was to be consumer credit. At first the credit came from the ever increasing use of credit cards and from loans raised on the security of ever increasing house prices. Growth was driven by the ever greater use of credit. Banks cooperated by making increasing amounts of money available on ever more generous terms to finance house purchases. All this extra money in the housing market pushed up house prices, which in term increased the value of assets (houses) on which loans could be raised. Any economy whose growth is dependent on ever increasing levels of consumer debt is inherently unstable. Debt financed trade is particularly vulnerable to adverse changes in the economy. A rise in interest rates can lead to a crash in demand as people can no longer afford to borrow at the new higher rates. This happened in 1990, 1999 and 2008.

The unvirtuous circle

When economic growth is dependent on ever increasing levels of consumer credit, extraordinary steps have to be taken to keep consumer credit growing. In the years immediately preceding 2008 banks and other financial providers took increasingly less prudential steps to keep the level of consumer credit growing. Applicants for mortgages if self employed could self certify their income, mortgages were increased to 125% of the value of a property and to make possible the purchase of increasingly expensive properties the time over which a mortgage could be repaid was extended from twenty five to forty years. The whole financial sector was gambling that house prices would increase at an ever increasing into for the indefinite future. This could not continue forever and inevitably the whole system came tumbling down in 2008, resulting in the greatest recession since the great recession of the 1930s.

Rather than taking the difficult step of rebuilding the economy on sounder lines, the government took extraordinary steps to stoke up the credit bubble. Interest rates were reduced to record lows, so people could continue in their risky habits of funding expenditure from credit. The government poured record amounts of money into the banking sector to keep rates low and to ensure that the banks had plenty of cash to lend for the various speculative activities that would fund the demand for goods and services that would keep economic growth going. Strangely enough they were abetted in this by the employers who would keep wages low as possible, but who would instead give those same employees whose income they froze, access to the most generous of terms for credit. Since the crash there has been a rapid growth in what is called shadow banking, a system where the manufacturers rather than the banks provide credit. One such example is the credit hire or leasing system for the purchase of cars. A system whereby the buyer leases a car for a period of say three years and then returns the car to the dealer and then takes out another car on a lease. While car leasing is not unsound, it becomes unsound when it becomes part of an ever increasing credit bubl. Leasing as with another system of credit is particularly vulnerable to any adverse change in the economy.

One such event was last Friday when the result of the referendum was announced. A debt driven economy will be easily upset by such an event. There has been since Friday a rapid collapse in the share prices of banks and other financial institutions, as any adverse change in the economy makes it more likely that there will be an increase in the rate of default and the profits of the banks will be particularly badly hit.

The great mystery is why conservative businessmen who will use any method to keep down or reduce the wages of their employee’s down and yet will throw increasing amounts of cash to enable the same employees and those of other businesses to buy goods on credit. To this particular economist this is the riskiest of economic strategies, yet governments encourage such practices. The only conclusion that I can arrive at is that rather than these businessmen being the great leaders they are lemmings that follow the worst instincts of the herd.

What skills does a good economist need?

May 23, 2016economic history, Economics, Neo-Liberal economics, Philosophy, Politics, Uncategorized#MiltonFriedman, Ancient Rome, General Pinochet, George Osborne, J.S.Mill, Keynes, Mikhail Bulgakov, Mrs Thatcher, Neo-Liberalism, Nigel Lawson, Slavery, The Brothers Karamazov, The Great Depression, The White Guard, Winston Churchillangrytunbridgewells

Humility and the willingness to change their minds

Winston Churchill when speaking of Maynard Keynes (the greatest British economist of the 20th century) said that when four economists are gathered together you will get five opinions and two of them will be from Keynes. What this illustrates is that what the good economist recognises is that economics is dogged by uncertainty. The economy and its host society is so complex that any unexpected change can result in the policy measures undertaken producing contrary results. When Nigel Lawson in his budgets in the 1980s cut taxes he overstimulated a rapidly growing economy. All that extra money from the tax cuts had no outlet except in for investment in the property market, causing a housing boom that ended in a crash in 1990. Policy recommendations should be made in the spirit of cautious optimism. With the recognition that policies might need to be changed if circumstances change, as there is no certainty in the practice of economics.

When Mrs Thatcher said, ‘that the lady is not for turning’, she made a terrible mistake. Her policy of using high interest rates to squeeze inflation out of the economy through depressing demand had the unfortunate consequence of driving the exchange rate. This high exchange rate made large sections of British manufacturing industry uncompetitive. The consequence of this was that British manufacturing industry lost 20% of its capacity, which had the long term consequence of Britain developing the largest trade deficit in the developed world. A problem that still persists today.

A capacity for scepticism

There is no ‘economic cure all’ that can solve all problems, although many economists and politicians foolishly believe that there is such a policy. The latest ‘economic cure all’ is Neo-Liberal economics. In the 1970s the post war economic settlement seemed to be falling apart. In 1976 inflation hit the unheard of high of 27% in Britain. A group of economists the Chicago School claimed to have the answer, they diagnosed the problem as being one of excessive government borrowing to finance its spending programmes. This borrowing increased demand to a level beyond that which the economy could meet and as supply could not be increased prices rose, as consumers entered into bidding war to get these relatively scarce goods and the consequence was rising inflation. This problem was made worse they said by all the restrictions on the market which prevented industry responding to change by increasing supply to meet increased demand. These restrictions were such as the managed exchange rates, trade unions, employment protection laws and health and safety legislation. If government spending was cut and the restrictions to the market were removed, inflation would fall and the economy would grow ending what was a period of ‘stagflation’. What these economists ignored was the massive increase for the world’s oil etc caused by the American participation in the Vietnam war. There was such a massive expenditure of material in this war that it seriously distorted the world economy. More bombs were dropped in this short war than during the whole of World War II. When Nixon negotiated an end to the Vietnam War that decision did more than any economic policy measure to end the malfunctioning of the world economy.

Whether its called the monetarist or the Neo-Liberal economic school of economics, it has failed.There have been three world wide recessions since 1990 each one worse than the previous one. Growth remains minimal, the growth in incomes has stalled yet economists (the majority in the universities and those employed by government and international institutions) and politicians refuse to change their policies. They have invested too much prestige in the Neo-Liberal revolution to abandon it now. A little scepticism about the policies of the present would not come amiss. There are plenty of alternative policies that can be used, it’s only stubbornness and ignorance which prevents them being used.

When politicians and economists state ‘that things have changed’ and that we are in a new economic paradigm, it a sign things are going badly. It’s a weak defence offered for a policy that is failing and for which no better defence can be thought of. It is the wisdom of parrots as politicians repeat this mantra endlessly without understanding that these phrases are completely meaningless.

A good economist will be well versed in literature, in fact English literature should be an essential part of the course of study undertaken by a trainee economist.

Economics has the potential to be the dullest of subjects. I remember that in the second year of my university course all the second year students had to attend a series of lectures given by one of the world’s greatest monetary economists. They were so boring that students did all kinds of things to distract them from the tedium of the lecture. One particular incident sticks in my mind and that was when a group of bored students launched a giant paper plane from the balcony which soared over the lecture hall.

Literature should be an essential part of the course, because a great novel can better than anything else explain the impact of economic and social change on a people. One of my favourite novels is “The White Guard” by Mikhail Bulgakov. This novel details the impact on one Ukrainian family of the Russian civil war. The play on which the novel was based was Stalin’s favourite play, even although he was on the opposite side of the conflict. The reading of such novels will hopefully lead to the development of some sensitivity towards the human condition in the trainee economist and hopefully led them when qualified and employed by government to hesitate before recommending policies that cause unnecessary economic and social hardship. One cannot impose a test on economists for the possession of those essential qualities that go to make a wel rounded human being, but hopefully immersion in a course of literature will be a good substitute.

Milton Friedman the Chicago economist provides an example of the extreme insensitivity of which economists are capable. General Pinochet launched a coup to overthrow the socialist government of President Allende. The aftermath of the coup involved the torture and killing of many of those people opposed to the coup. Milton Friedman lauded the actions of Pinochet as necessary for the greater good of society, as the imprisonment and killing of these socialists made possible the introduction to Chile of the free market economy. Only a person of extreme insensitivty would applaud the killing of people as the best means to achieve some ultimate end. I tend to agree with Ivan who at the end of the novel “The Brothers Karamazov” asks God why does he permit the death of a child. (when being shipped of the Labour camps of Siberia he witnesses the pain and a suffering of a woman holding her dead baby). Any economist should ask does my policy proposal cause unnecessary suffering and is there a better alternative that will minimise human suffering. Killing may be necessary in fighting a war but never in imposing economic change on a society.

It may also hopefully prevent economics students suffering from too many dull and boring lectures, as the lecturer will have a better grasp of the English language and human nature than would otherwise be the case.

A good economist will be schooled in philosophy

Any economist must recognise that any policy proposal will be flawed or wrong in some measure. J.S.Mill in the 19th century stated that there could be no science of the humanities because human society was so complex. There were so many possible causes of a particular social or economic event and so many possible unintended effects of a policy measure that the one essential requirement of a science could not be fulfilled and it was impossible to have a science it which it was impossible to demonstrate cause and effect. Mills’ words seem to have been forgotten in the twenty-first century. It is believed that computers that can overcome this problem, as they can make calculations involving thousands if not millions of variables. However what politicians and economists at the world’s Treasuries fail to recognise is that the output of the computer findings are only valid if the calculations on which the predictions are based are valid. What politicians fail to recognise and economist ignore, is that the model of the economy used in the computer does not work, there is something missing. Treasury economists have to insert an ‘x’ factor into the calculations, a reality factor to enable the computer to deliver a realistic prediction. This x factor is little more than an informed guess. This is why the Treasury computer can only make a correct prediction about economic growth after the event when the necessary corrections can be made to the computer model.

Any student of philosophy learns the limits of human knowledge in the first year of their course. It was a shock to this particular student that philosophy provided few of the answers to the questions that he wanted answering. One such question is what is good, Plato tried to answer this question in this question in his book ‘The Republic’ written in 380 BC and it is a question which philosophers ever since have struggled to answer. Now analytic philosophers tend to think it is an unanswerable question and not one contemporary philosophers should waste time on answering. Instead the quests of past philosophers to understand the nature of the good are to be seen to provide a good schooling in the techniques of philosophy but little else. Students such as myself had instead to look to theology to provide some answers. The point that I am trying to make is that philosophers understand the frailty of human nature and its limitations. A true philosopher can only laugh at the claims of Neo-Liberal economists who claim to understand the workings of the economy, as the evidence from philosophy demonstrates the continued failure of man to have a complete and full knowledge of human nature let alone human society. The problem with so many economists today is that although they have studied PPE, they compartmentalise the philosophy they learn and think that its findings do not apply to economics.

Diogenes Laertes in his history of the philosophers recalls how visitors to Democritus frequently found him laughing in his garden. A thing he frequently did when considering the follies of mankind. If the effects of the wrong economic policies were not so disastrous, I would join Democritus in his laughter.

A good economist is aware of the past and does not think today’s events are unique and without parallel in the past and is prepared to recognise the similarities between today’s events and those of the past.

One extreme example springs to mind, both the governments of the Roman Empire and contemporary Britain regard the provision of cheap food for the people as a priority. Rome was able to supply cheap bread to its people through conquering the countries that were the bread baskets of the Mediterranean and then by supplying low cost labour for the farms in the form of slaves. Contemporary Britain by contrast encourages the production of cheap food through the provision of subsidies to farmers, one estimate is that now 50% of farmers incomes now comes from EU subsidies. Most of this money goes to towards subsidising what is termed industrial farming, which produces large quantities of food at low cost, but in an environmentally damaging manner. Unfortunately there is evidence that British food suppliers are adopting some of the practices of the Romans. Some of migrant workers on Uk farms adopted in work in slave like conditions.

What the government could learn from Rome is that using low cost labour methods of production discourages investment and innovation in industry. If there are endless supplies of cheap labour employers see no compellilng reason to invest in expensive machinery, if there are endless supplies of cheap labour. Studies of slave labour have demonstrated how slave labour acted as a deterrent to industrial innovation. A government and business class that believes the only solution to problems in the economy is to make labour as cheap as possible have a lot to learn from the slave economies of the past.

While the one lessons that can be learnt from Rome’s history are negative, much that is positive can be learnt from the actions of the government in the 1930s. This government tried to stimulate an economic recovery after the devastating crash that was the Great Depression. The government then recognised the importance of getting new investment into manufacturing industry so as to kickstart a recovery. Recognising that the banks were unwilling to do this, it set up an industrial investment bank which would lend money to manufacturing industry. Today one of the issues that is delaying the recovery is the comparative lack of investment in industry and manufacturing industry in particular. A recent study showed that only 15% of bank loans went to investment in industry most when into speculative trading in property etc. There is nothing to be lost and much to be gained by setting up a new industrial investment bank and it could be financed through a levy on commercial banks, as happened in the 1930s.

This list of criteria for judging what is a good economist is not intended to be exhaustive but suggestive.

The Economics of the School Playground or Free Market Economics

May 5, 2016economic history, Economics, Feminism, irony, Neo-Liberal economics, politics, UncategorizedAnn Pettifor, Competitive behaviours, Financial crash 2008/9, free market economics, Joan Robinson, Lloyds Insurance Market, Male behaviours, Neo-Liberalism, Play and playgrounds, Private Sector Debt, Social Darwinism, The Food Mafiaangrytunbridgewells

Recently I met a group of friends who like me are nearer to seventy than sixty. What surprised me was that the ethics of the school playground still prevailed amongst us. As we had not met for several years, there was an immediate struggle within the group for supremacy. One particularly made a determined effort. First through trying to put down what he saw as the weakest member of the group, by making a slighting references to his speech impediment. Once having demonstrated his superiority to over him in his mind, he went on to list his recent achievements to demonstrate his superiority over the others. This competitive behaviour is apparently typical behaviour of men in any social situation. Once he felt that he had achieved top dog status he calmed down and returned to a more normal conversational mode. This is little more than a grown version of the playground behaviour we indulged in as children. In my primary school it was superiority in the traditional sports of marbles, conkers or any athletic activity that counted. There was inevitably one boy who excelled at all things and who had the admiration of all, the alpha boy (male). What struck me was that if the behaviour and the ethics of the playground still governed the behaviour of this group of near seventy old men, surely these playground behaviours must come to the fore in all spheres of activity in which men participate.

Obviously it is possible to overstate the influence of the learnt playground behaviours on adult males; however there do seem to be striking similarities between behaviours of boys in the playground and those of adult males. Is this not demonstrated in the male obsession with competitive sport? Men are taught from their earliest age that life is a competition in which its necessary to win or at least do well. Losers are beneath contempt, I still remember with horror the way us boys treated the designated loser in the playground. The vital social skill of co-operation is placed well below that of competitive ability. Until very recently economists were men, the Cambridge economist Joan Robinson (1903-83) being one of the exceptions. Does the dominance of men in economics with their competitive behaviours influence there understanding of the economy? The answer is a probable yes. Economists see the competitive market as the infra structure upon which the economy is grounded. All sectors of the economy are nothing more than competitive markets in one guise or another. Economic theory is a theory of winners and losers. Losers play an essential role in the economy as through their failure they remove from the market those producers that are inefficient, those that produce the wrong products and those workers that are less efficient. Unfortunately the losers suffer the penalty of unemployment, but they have a function in that they provide an incentive to those in work to try harder to avoid the penalty of unemployment.

Co-operation rarely gets a mention in economic textbooks, except in negative terms; trade associations and trade unions are seen as nothing than barriers to the efficient working of the market. However this ignores the fact that society as a whole is largely a co-operative enterprise,in which people co-operate for the greater good. Education and healthcare in this country are examples of collaborative enterprises. Even in the commercial market the rival traders see the benefits of collaboration. When I worked for a London insurance broker, my employers and others collaborated in the financing of the Lloyds insurance market and its management. They co-operated because they knew a regulated and well organised market would attract more business as people with place their money with businesses they trusted. Unfortunately with the deregulation of the market in the 1908s there has been a falling away of standards and trust particularly in regard to the life assurance companies.

There is one example from the playground that male economists seem to have forgotten. Rules are needed to make the games boys play work. One game that we used to play at the Scout hut was British Bulldog. There would be two teams of boys, one trying to stop the other team from reaching the other side of the room. The easiest way to stop the members of the team trying to cross the room would have been through extreme violence, such as a punch. To prevent this game degenerating into a fight rules were imposed which prohibited any contact apart from the grabbing and tackling of opponents. Just as British Bulldog needed rules to make the game work, so does the economy needs rules as without them bad practice thrives.

Seemingly economists have voiced their approval of the actions of the playground bully, he who but for rules would have got his pleasure from hurting others. All influential economists are of the Neo-Liberal school which sees government regulation hampering the legitimate activities of business entrepreneur (bully). Their mantra is that business knows what is best for business. The malign impact of this abandoning of all rules is demonstrated clearly in the food market. There successive governments have since the 1980s weakened or removed much of the legislation governing food hygiene, In tandem with this they have reduced to an almost insignificant number, the number public health and food inspectors. One consequence of this has been shown in the recurrent food scandals, most recently the beef scandal in which supermarkets were found to be selling horse meat instead of beef in many of their processed meat products. Criminal gangs have also found that lax food and healthy regulation make it possible to relabel and process food that unfit meat to the supermarkets for sale to the public. Food writers write of a food mafia that is exploiting lax food and hygiene regulations to the detriment of public health.

There is hope for change as there are now many more women becoming economists. I don’t want to make the suggestion that women are any less competitive than men, having two daughters I can testify that women can be extremely competitive. However women value co-operative behaviours more highly, they learn from an early age the value of supportive groupings. One example of this co-operative behaviour is the support that mothers offer each other with childcare. All the pre-school child care groups in my locality were organised and run by local women with or more usually without government support (funding). What I am trying to suggest is that the different life experiences of women make them value collaborative behaviours more highly than men.

Many of these new economists reject the social darwinism of the mainstream, one economist such economist is Ann Pettifor. She has warned of the dangers of the unregulated financial markets in her book ‘The Coming First World Debt Crisis’. These unregulated market she explains are in danger of bringing about an economic crash greater than that of 2008/9. In the UK private sector indebtedness amounts to 2000% of GDP, the highest in the developed world. This level of debt is a threat to the future viability of the economy, yet the government persistently ignores their problem. Lord Oakshot described the British Treasury as the bastion of free market fundamentalism. It almost goes without saying that the senior economists at the Treasury are male and are so wedded to the idea of competitive markets, that they refuse to consider any other than the most minimal of regulation in the financial markets.

This is not to deny that some of the new women economists are of the orthodox persuasion, as a number of them work for that centre of economic orthodoxy the British Treasury. What I suspect is that a greater percentage of female economists are of the non-mainstream variety, than is true of their male colleagues. If men tend to see the world as nothing more than a series of competitive interactions, they will have a preference for those economic practices that encourage competition and they will see any regulation of the competitive market as anathema. Unfortunately despite its public statements to the contrary, the male dominated Treasury sees little reason to do other than minimally regulate the financial markets, despite the likelihood of an unregulated financial market repeating the experience of the crash of 2008/9.

Why are our leaders so stupid?

April 26, 2016christianity, economic history, Economics, irony, Philosophy, politics, religion, Uncategorized#austerity, #classical greece, #economics, #Isis, #St.Augustine, #UKIP, Avveroes, Bonhoeffer, Boris Johnson, Brexit, Columbus, Derren Brown, Donald Trump, expansionary fiscal contraction, George Osborne, Muslim Fundamentalism, Protestant Evangelical Preachers, Rumi, St Francis, Tea Party, Walter Benjaminangrytunbridgewells

What puzzles me is why are people such as Donald Trump and Boris Johnson so popular. The first advocates the policies of a clown and the second pretends to be a clown to achieve political success.

When I was at school in the 1950s I remember being told about Columbus’s voyage to America. The Headmistress told us that it was a particularly daring adventure, as people at the time believed the world was flat and thought that Columbus was in danger of falling off the edge of the world. The truth was very different as I discovered later. Columbus was an experienced sailor who knew about the fishing grounds off North America that European sailors visited each year that the Atlantic Ocean was bounded by a large landmass to the West. Also it was known at this time that the earth was round. The classical Greeks had realised that the earth was round because they knew there was a horizon, beyond which the eye could not see, therefore the earth surface must be curved.If was the geographer Eratosthenes (276BC to 195/4 BC) who calculated with an incredible degree of accuracy the earth’s circumference. It is highly unlikely that Columbus was unaware of that the earth was round. My teacher was typical of those of the time that believed that people of the past had a childlike understanding of the world, whereas in fact the opposite was true.

We assume today that our knowledge and understanding is superior to that of the past. Yet our politicians constantly disapprove this notion. In the USA Donald Trump is likely to become the Republican Party’s candidate for the Presidency and Boris Johnson possible future Conservative Party leader What both these leading politicians have in common is an anti-intellectualism, both of them in their campaigns seek to appeal to most primeval of voters instincts. Trump blames the Mexicans for crime and wants to erect a wall to keep them out, and Johnson believes that Obama’s part Kenyan ancestry makes him anti British, because of the injustices the British inflicted on Kenyans during the days of Empire. To say that both these politicians are intelligent men who are just using anti immigrant and anti foreigner feeling to win support and that they don’t really believe what they are saying does these two men a disservice, they believe what they are saying. They are both populists who believe in simple solutions to difficult and complex problems, both of them personify the anti-intellectualism which is dominant in the our society. The political dialogue in both countries is dominated by the anti-intellectualism of those such as the Tea Party whose policies are moving closer to the mainstream in both countries. UKIP a party that gets much media coverage seems to be campaigning for things such as ending the smoking ban in pubs. Sam Goldwyn once said a movie never lost money for underestimating the intelligence of the average cinema goer, now in politics the belief is that no politician ever fails for underestimating the intelligence of the average voter. There is a change in society that has made stupid politics the dominant strand. Possibility it is linked to Walter Benjamin’s insight (when writing about the cinema) that contemporary media leaves little time or scope for reflection, as the media image is all involving leaving no opportunity for distancing necessary for reflecting on the projected image.

If I was to compare contemporary England with medieval England, I would say that the former is technically sophisticated but intellectually unsophisticated. This is not to say that there are not a community of intellectuals whose thinking is far superior to that of those of the medieval era, but these people are excluded from the public debate, which is dominated by the advocates of stupid politics. Obviously Trump and Johnson are not stupid men, they just find a politics of idiocy the most effective means of self promotion. What is most disturbing is that these men intend to pursue the policies they advocate, without regard to the damage caused to society through the introduction of their simplistic policies.

As an economist I can see the dangers of practising stupid politics. Britain has endured years of austerity because the government believes in a nonsense called ‘expansionary fiscal contraction’, that is cutting government expenditure will increase growth. Despite this policy having no economic credibility the opposition’s chief economics spokesman, a man who had a top class degree in economics from Oxbridge immediately signed up to the policy. Knowing it was fallacious economics made no difference, he did not want to appear out of step in with all the others who were practising stupid politics. Bonhoeffer said that the success of the Nazi’s was due to fact that good people did not speak up, similarly stupid politics is prevailing because the intelligent do not speak up. In England it is the noise and abuse made by the practitioners of stupid politics that scares of the intelligent when we most need them.

Intelligent women for example are put of entering the English Parliament because of the sexist behaviour in the bear pit that is the House of Commons. When female opposition MPs speak, male MPs on the government benches often make crude sexual gestures with their hands and shout sexist abuse. Also any show of intelligence is likely to get a politician pilloried in the tabloid press as a geek, as happened to the last leader of the opposition. Anti-intellectualism is rife in the English political culture and it’s preventing intelligent government.

What really provoked me into writing this article was a tweet by the illusionist Derren Brown, in which he referenced a You Tube in which two evangelical preachers explain why it is necessary for them to own private executive jets. One says it is so he can get some quiet time in which to talk to God, as he would be unable to do that on a flight with other passengers who would disturb him. Christ when he wanted a quiet place for meditation found a quiet spot in a garden or in the countryside, surely these two men could have done the same. These two men are Christian literalists they believe that the bible is the word of God and that all should to obey the word of God as explained in the bible. These two Christian literalists are following a practice condemned as being wrong as far back s the early Middle Ages. St. Augustine in his book on Christian teaching explained that the bible should not be taken literally, the word of the bible required explanation by the Christian teacher. Following St. Augustine’s advice all medieval bibles contained commentaries on the page side by side with the biblical text. These commentaries were there for the preacher to help him explain the text to the people. What these evangelical preachers are doing is practising a type of Christianity that even the least educated of medieval priests would have recognised as wrong. If these men had been medieval clerics they would have been relegated to some obscure rural parish where they could have done little harm. Yet these men are seen as representative of true Christian belief, religion seems to mirror the practice of stupid politics.

This simplistic religious view of the world that divides the world up into good and bad guys is very influential. George Bush’s crusade against the evil of Saddam Hussein’s Iraq is representative of good versus bad guy politics. Isis and other Islamic fundamentalist groups embody the same good bad guy philosophy. A philosophy that justifies the cruel treatment of all unbelievers whether they be Christian, Yazidi or Shia Muslim, as they are already condemned by God for rejecting the true religion and as such are wordless people. One of the main targets for Islamic fundamentalists are the Sufi Muslims who practice a more sophisticated and humane religion. The simplistic belief of the fundamentalists contrasts unfavourably with the sophisticated Islam of the medieval period as demonstrated in the poetry of the Rumi (1207-73) or the philosophy of Averroes (1126-1198). Christian thinkers owed much to these men, Francis of Assisi’s thinking was greatly influenced by the poetry of Rumi. Depressingly anti-intellectualism is not only a feature of Western politics but also in the politics of much of the Muslim world.

There are many sophisticated and intelligent clerics today but they do not get a hearing in today, because their speech is too subtle and nuanced for a world that wants simple truths. Rowan Williams the very intellectual former Archbishop of Canterbury was pilloried in the press as a bearded weirdy. They were not interested in the message from an educated Christian, for them Christianity is that of the simple minded fundamentalists.

There is no doubt that the public appetite is for stupid thinking, there is a wanting for people offering a few simple homespun truths that they claim will solve the world’s ills. Does not the constant diet of super hero films coming out of Hollywood demonstrate that something is very wrong in our culture? Hollywood appears to have opted out of making adult films, as it has correctly judged that the audience for its films want simple child like stories. The only hope is that the world particularly the Western world will tire of simple childlike stories and politics. When politicians such as Donald Trump and Boris Johnson get chance to put into practice their childlike policy solutions and those policies prove to be a resounding failure, the pendulum will surely swing in favour of a more grown up politics.

Ugly economics an explanation of why we are in a mess

March 29, 2016economic history, Economics, Greek Drama, Philosophy, Uncategorized#classical greece, #Greece, #Plato, Alcibiades, Athenian Democracy, free market economics, George Osborne, Gordon Gecko, Neo-Liberalism, Neo-Platonism, poverty, Theory of the Forms, Ugly economicsangrytunbridgewells

Plato developed the theory of forms which stated that all the virtues such as good and beauty were but mere copies of their ideal forms that existed beyond the sphere of life inhabited by humanity. In Plato’s creation myth the demigod who creates mankind makes mankind from the only material available, clay. A being made up of inferior materials unlike the Gods could never see the virtues in their true forms and would never able to appreciate true Good or Beauty. These inferior beings could only apprehend what were in effect rough and ready copies of the true virtues. Men could only know an approximation of the virtues. Although Plato was writing two thousand years ago his theory of the forms describes accurately the state of current economic knowledge, it is but a very imperfect copy of what might constitute true economics.

When I read economics what is striking is the lack of beauty in the subject, unlike for example physics there is no beauty in its formulations. Physics reveals the beauty of the universe, whereas all economics does is to reveal the ugliness of human society. The words of Gordon Gecko that ‘greed is good’ can be taken as the principle from which all current economic analysis derives. Our current Chancellor of the Exchequer believes that rewarding greed through tax cuts for the wealthy is good, whereas helping the poor through welfare payments is bad, as it merely rewards a group of losers who are deprived of the incentive (compulsion) to work to provide for themselves and their families.

As a NeoPlatonist I recognise that although all the human sciences cannot be one or another form of moral philosophy; I do believe that a good social science should be informed by at least some of the virtues. Whenever I read an economic text it is very rare that I am grabbed by the beauty of the writing. All too often it is a struggle to get through some poorly written text. A text that is peppered with difficult to understand economic terms, words that disguise the emptiness of the written text. I believe that a text that is ugly in its construction can only create something that is ugly.

Good writing is that which contains understanding of beauty and as such moves the reader bad or ugly writing lacks any of the other virtues and as such has lost touch with humanity. The government by constantly referencing ugly economics to justify all forms of unpleasant policy measures. One of the hidden scandals is the number of disabled and ill people who have succumbed to sudden death, as a consequence of sudden and unexpected benefit cuts. There are those ill and disabled who have resorted to suicide in consequence of the sudden loss of the income on which they depend. Normally in such situations policy measures that have caused death would produce some contrition within political classes. The harsh welfare polices of the past few years have produced no such reaction. Instead ugly economics gives the justification to such measures, as what counts is the effectiveness of the whip that compels people to work. Government policy seems to a perverted inversion of Plato’s theory of forms. The supreme good is the balanced budget and subordinate policies such as welfare cuts are intended to make possible the attainment of this supreme goal. If this is the supreme good of human society it must be a very poor or mediocre society that sees this as its supreme good, a society which has rejected any sense of the grand vision that society’s of the past embodied. Athen’s with the construction of the Parthenon is one example of the grandeur of the human vision, contemporary Britain in which the only large constructions are shopping centres or malls sense to represent the very rejection of the grandeur that is humanity.

If Britain is to be judged by it’s leaders it is a nasty society bereft of any of the virtues that make a great society. A society which uses hunger as a scourge to make the poor work lacks any of the virtues that make a great society. All it’s leading politicians are like Socrate’s Alcibiades, a physically beautiful young man in appearance but in an inversion the Silenus dolls were ugly only on the inside he was ugly on the inside. Physical beauty concealed an ugly soul. It is not a true demonstration of the ugly society that politicians take great pains over their appearance, maintaining their youthful image through jogging or other forms of exercise and cosmetic surgery, What matters is their image, how they appear on the media. All our leaders tend to exhibit that fatal Alcibiades trait, beautiful on the outside ugly on the inside.

Perhaps it is being too unfair to blame the proponents of ugly economics for the mess that we are in. Could it not be equally possible that it is the ugly society which has created an ugly economics to match its essential ugliness. If economists are merely responding to the demand from the major power holders in society for a theory to justify their existence, they are culpable of devising a message that enables the ugly society to thrive. Their privileged role as the sanctioned intelligentsia serve to suppress any alternative voices. They are like the garden weed that denies those food plants we desire the space in which to grow and thrive.

New Economics – a new approach to policy making

March 14, 2016economic history, Economics, PoliticsBabylon, Bernie Saunders, David Cameron, Demagogues, Donald Trump, Hammurabi, Jeremy Corbyn, Joseph, New Economics, Private Rental Market for Accomodation, Scepticism, The Old Testamentangrytunbridgewells

As a sceptical economist it is all to easy demonstrate the failings of contemporary economics, what is much harder is to suggest an alternative to the current practice of economics. However it is not so difficult as it appears as history suggests an alternative approach to economics.

Economists generally take the individual as the basic building block from which society is constructed. In most textbooks there is a very tedious chapter on how primitive man built up a chain of exchange networks that were to become the rudimentary economy. From this starting point economists develop a theory which demonstrates the superiority of the free market. However this is erroneous as the basic building block that makes up the economy is the community, it is communities that exchange goods and services. In Celtic Britain it was the local top man (as representative of the community) with whom traders from the Mediterranean dealt. They exchanged their goods for British tin but it was a very ritualised transaction. Obviously there was bargaining but not as the economists imagined, there was no protracted bargaining to establish the equivalence of one unit of tin for one amphora of wine. Even the local market where individuals exchanged goods was not as one as economists imagined where individuals freely bargained for goods, it was a market that was regulated by the community. The local rulers realised how disruptive an unregulated economy could be, as traders would seek to exploit times of famine or shortage by pushing up the exchange value of their goods and so leaving the poorer members of the community to go hungry. The anger this generated could lead to food riots and threats to the established order. When the Bible explains that Joseph built store houses in which to keep grain in the years of surplus for distribution in years of shortage, this was not as the Bible suggests an unusual practice, but one common to all established societies of the time. Rulers were above all interested in social stability and maintaining social order.

There was discovered in Babylon the code of Hammurabi (1157 BC). It was a pillar which set out the prices of the goods to be exchanged in the local markets. Economists have claimed that it would be honoured more in the breach than in practice, as its impossible for the state to control prices, as these prices would fluctuate of their own accord with changes in the market. In years of plenty prices would fall and in years of shortage prices would rise. However this is to misunderstand Hammurabi’s intent he wanted to ensure a reasonably equitable distribution of resources to maintain social order. There would have been a number of inspectors to check that traders were abiding by the regulations and failure to abide by them could result in severe punishment. What economists fail to understand is that economic power must always take second place to political power as the latter has the monopoly of violence. Threats to life and limb would ensure that Hammurabi’s traders observed the law.

Today societies in the Middle East have continued this practice by supplying their peoples with supplies of cheap flour. Economists deplore this wasteful habit, but what they fail to understand is that cheap flour is the means by which the governments of these countries maintain social order. Without the cheap flour there would be food riots and regime change. When economists from the International Monetary Fund and the World Bank try to force these governments to put into policies that end the practice, they are forcing on these governments politics that will lead to widespread discontent. What these economist fail to see is that in these poor economies the economy does not work as is described in the textbooks and the same is true of advanced economies.

Hard as it must be to accept the Arab strongmen that distribute free or cheap flour to their people have a better understanding of economics that most economists. Economist tend to believe that the free market is the best mechanism for ensuring a fair and equitable distribution of resources. However this is fallacious as it ignores the existence of power and how the powerful can abuse the market to best benefit themselves. Hammurabi recognised that the great landowners if given the opportunity would manipulate the market by holding back supplies to increase their price and so to maximise their income. He denied them this opportunity by threatening those that tried to manipulate the market in their own interests with dire punishments. In such societies it was easy to attract the anger of the government and suffer severe consequence which would include bodily mutilation or death. Our current leader David Cameron has a much more naive view of the economy he does not believe that those with the most economic power will abuse that power to benefit themselves at the expense of the majority. Instead he believes that those businesses that conduct such abuses will be stopped from abusing that power by the market. If there prices are too high or they withhold supplies to the market consumers will switch to other suppliers so forcing the abusive business to mend its ways. This view ignores the realities of power, the abusive supplier has the power to manipulate the market so that consumers are forced to buy their goods. They can use a variety of means to deny entry to the market to alternative suppliers. David Cameron is not alone in his naive view of the economy, it is shared by the political class as a whole.

The iniquities of the free market are best demonstrated by the private rental market in the UK. In this market there is a great inequality of power, there are the tenants who if they cannot find accommodation will be forced on to the street and the landlords that can choose who if anybody shall be a tenant. The desperate tenant is forced to accept the price for tenancy chosen by the landlord, so now there are many examples of well paid professionals being forced to pay up to 50% of their income in rent. The landlord can choose not to let his property until he finds a tenant willing to pay the high rent he wants for the property. The tenant only has a choice between paying the high rent or homelessness. One consequence is that there is an increasing proportion of the population that is homeless or forced to live in inadequate, squalid and unhealthy living conditions. The only response by the political classes to this crisis is to promise to build more houses sometime in the future. It goes without saying that governments have promised this for the past twenty years but there is little evidence of a substantial increase in the number of houses being built. Not one British politician has the wit of a Hammurabi.

What economists and politicians must recognise is that the free unregulated market works to the benefit of the most powerful players within the market. The market left to its own devices will always leave many people hungry and poorly housed, if housed at all. From the view of the majority the free market system is dysfunctional it works to deny them a good standard of living and instead works to keep them poor. Until a government legislates to prevent the abusive practices of the most powerful players in the market the people will continue to suffer a decline in there living standards. Now in Britain for the first time in decades the young will experience a poorer standard of living than their parents. The economy is just not working for the majority of the people.

This is a truth largely unrecognised by the political classes. Discontent so far has been limited to supporting the few politicians that recognise this truth. Politicians that are on the fringe of the political class. In Britain it is the former back bench MP Jeremy Corbyn and in the USA Donald Trump and Bernie Saunders. However if politicians continue to fail to recognise the failings of the current system the discontent won’t be limited to voting for politicians but it will take a more serious and aggressive form. In the last century troops appeared on the streets of Britain and the USA to maintain order. The first combat that the commander in chief of land forces in Europe, General Eisenhower experienced was when he commanded troops to shoot at unemployed ex soldiers protesting in Washington.

What politicians don’t understand is that the economy does not work as described in the textbooks. The unregulated free market rather than deliver the greatest possible wealth to the community, functions instead to meet the demands of the most powerful players, the business corporations. The free market is a dysfunctional economic system in that it fails to maximise the welfare of the people. Hammurabi was right in 1157 BC the market needs regulating so it operates in the best interests of the majority. The state has to ensure a reasonably fair distribution of wealth and to do this must prevent the abuse of power by the most powerful players the big that will prevent this happening. While inflicting bodily harm on the corporate offenders is inappropriate in the 21st century there have be legal sanctions to ensure that company bosses don’t abuse their power. A start would be a recognition that there is such a thing as economic crime and for which the most appropriate sanction is a prison sentence. Why should it not be an offence when company bosses take money out of a failing company to ensure that when it fails they will have a substantial nest egg to cushion them during their brief period of unemployment.

Economists complain that government regulation impedes the workings of the free market, while ignoring that this is precisely what the large corporations do. Microsoft, Apple and Google have all exploited their monopoly power, to rig the market it their favour. The same applies to the privatised transport and energy giants in Britain. Perhaps the best example is the energy company EDF securing a deal that will guarantee them energy payments which most experts agree will be three times the average price paid for energy from their proposed nuclear power station at Hinkley Point.

Economic policy making should be based on the recognition that the market fails to deliver. The priority for government policy should be that of Hammurabi and the various Middle Eastern dictators and the Social Democrat states of the Europe of the 1960s that is to ensure a reasonable distribution of economic wealth. A distribution policy that would ensure that even the poorest paid are not short of the essentials needed for the good life. Such a policy would require state intervention in many forms to achieve this end, it might for example involve competition regulation* that would prevent monopolies from abusing their power or changes in the law that equalised the power relationship between employee and employer. Governments must realise that their role is to ensure that the economy is run for the benefit of all not a small minority. They cannot claim as they do at present, that this is an unrealistic aim as history is full of examples that prove the contrary.

*Britain does have a competitions policy but it is so ineffective that is fails to prevent monopolies or cartels abusing their power. It is as effective as the human rights laws in the old Soviet Union, which failed to prevent millions being sent to labour camps.

Astrologers, soothsayers and pseudo economists

February 25, 2016economic history, Economics, Philosophy, Politics, UncategorizedAstrology, Capitalism, Communism, Elizabeth 1, Financial crash 2008/9, John Dee, Keynes, Liberal Democracy, Neo-Liberalism, Nostradamus, Phillip Gould, Pseudo economics, Soviet Union, Tony Blairangrytunbridgewells

All political leaders share one common weakness and that is desire to know the future so as to be one step ahead of their rivals. This makes them susceptible to the practitioners of the various pseudo sciences that can give them both a knowledge of future events and how to use that knowledge to their advantage. These pseudo scientists that in the past practiced this spurious futurology were the astrologers and soothsayers, today these people are more likely to be economists and psephologists. It is the lust for power that makes politicians so susceptible to the machinations of soothsayers of various kinds. There is not one political leader today who does not have an in house psephologist on hand to read the political runes. This is a common practice that runs through the ages, as one contemporary leader Tony Blair had the psephologist Phillip Gould to hand while Elizabeth I had the astrologer and alchemist John Dee.However I intend to focus this essay not on psephology but on the new pseudo economics.

Soothsaying and astrology as with pseudo economics claim to know the future and can offer policy prescriptions to obtain the best possible future outcomes. These economists claim to possess a unique knowledge of the world, a knowledge that only they understand. Soothsayers or astrologists could state from there understanding of the future when it would be a propitious time for action. There knowledge of the future and future events came from they understanding of the fundamental forces that determined the course of human history. Pseudo economists also claim a knowledge of those planetary forces of economics that will determine the future. In this case it is rather than the movements of the planets determining history it is the movement of market forces that determine history. They will claim that communist leaders wilful ignorance of these market forces will resulted in the collapse of the Soviet Union. Following the lead of these economists historians began to see the future as being one in which the capitalist liberal democratic model was dominant. Possibly the most notable was Francis Fukuyama was perhaps the most notable with his essay and book entitled ‘The End of History and the Last Man’. In both the essay and book he predicted that history would end in all countries becoming capitalist liberal democracies.

Nostradamus pales into insignificance in comparison with these pseudo economists, he could only predict the collapse of great empires in the most elliptical and obscure of terms, he was not granted the knowledge that enabled him to name those empires that would collapse. Economists had a more secure knowledge they knew exactly which empires would collapse, that is the Soviet Union and the China of Mao. If economists know the future and they have the means of introducing the future now, they will do so. They have persuaded politicians throughout the Western World that the future is the free market capitalism system and their role is introduce the reforms that will make the future happen now. This all political leaders have done through a series of measures known as supply side reforms. All regulations such as employment protection laws have been removed because they prevent the free operation of the labour market, similarly health and safety regulation has been emasculated because that also prevents businessman doing what is best. There is an underlying and naive assumption that businessman are well intentioned and will work for the good of all. However the various scandals in the food supply industry show that this is not true.

The apparent success of those societies economists that follow the new free market system as compared to the old communist command economies has led to an over claiming of the success of the new economics and their over confidence has resulted in the practise of the worst kind of pseudo economics. These new economists and the politicians are guilty of creating a new economics that is almost childlike in it’s understanding of the economy and the wider society.

Evidence of this child like science is the introduction of simple moral terms into economics analysis. In its most simplest this new economics states that all government actions are bad, while all action of the free market are good. Obviously it is usually disguised by more complex language, as is demonstrated by the economics of the British Treasury. All economists of my generation that is the ‘Old Keynesians’ understood that all spending by the government increased demand in the economy and the level economic activity. Therefore in a recession the obvious policy was to increase government spending to stimulate economy. Old economists called this process by which spending increased the multiplier as government spending would lead to an increase in spending which was a multiple of the original sum spent. Now the Treasury has decided this no longer happens as it cannot conceive of any situation in which government spending is beneficial, instead it has decided that all government spending reduces overall demand and the level of economic activity. The Treasury has given the multiplier a negative value of 0.6 so if the government spends an additional £100 million pounds it will instead of increasing spending reduce it by £40 million, the Organisation for Economic Development gave the multiplier a value of 1.5, so that the same spending would increase demand by an additional £50 million. When economic policy is determined by such a child like morality such as this it becomes bad economics.

Why I prefer to call bad economics pseudo economics is because it is science that is as fallacious as astrology.

There are some disturbing consequences of the practice of pseudo economics, perhaps the worse is the belief is that governments should give up on most areas of governance in society and transfer their role to the private sector and the market. A belief that the economy works best when left free of government controls and regulations had disastrous consequences the manifested themselves in the great crash of 2008/9. Banks by this time were no longer subject to controls that required them to hold large reserves to protect themselves against a possible bank run that could occur in a financial crisis. Consequently when the crisis happened the banks held such small reserves of cash that they struggled to pay their customers who wanted to withdraw their money. Northern Rock was the first to fail and only a massive injections of government money prevented the failure of two of the big four banks, that is NatWest and Lloyds. Now eight years after the crash the banks are still largely unregulated and hold cash reserves that are again likely to prove inadequate in the event of another financial crash, so that they are likely to again need government cash to fund bail out. Their reserves are now 3% of assets as opposed to 2% of assets at the time of the crash.

Banks have resisted increasing their reserves to what many would regard as a safe level, that is 5% of assets, because money held as cash earns nothing for the bank. Keeping their reserves as low as possible enables them to maximise their profitability but at the expense of security of the institution.

When the government withdraws its governance from the various sectors of the economy it allows bad behaviour to flourish. The banks are not alone in behaving badly, many other sectors of business show evidence of wrong doing.

Despite the evidence politicians remain believers in the new pseudo economics, whenever its suggested that the imperfect markets of the real world need regulation the politicians throw their collective hands up in horror and resist any attempt at regulating these markets. They seem to be in thrall to the contemporary economic Nostradamus’s that believe they have discovered the secret to the future well being of the country is in free market system. If we want a good tomorrow all we have to do is let the markets work unhindered and they will deliver the good tomorrow. However as housing provision is increasingly being transferred to the private sector, the market seems increasingly distant from delivering that good tomorrow. The economic soothsayers are the many consultancies that advise the government. Unfortunately our political leaders are unable to see that these soothsayers and astrologists of the economic world are as misguided and ill informed as their medieval predecessors.

There is a hint of bitterness in my essay as I am a believer in good economics, the practice of which brings benefit to society not the pseudo science of today for most creates insecurity, misery and impoverishment in the name of creating a better tomorrow.

An Unusual Economist

After the crash of financial 2008/9, it was obvious that the current model of economic analysis was broken. I want to develop a new approach to economic analysis.